Nvidia sees strong sales increase in Q2

SAN FRANCISCO—Graphics chip vendor Nvidia Corp. Friday (May 11) reported better-than-expected sales for its fiscal first quarter, ended April 29, and said it expects sales to increase significantly in the second quarter, despite the fact that the company is being hindered by a shortage of 28-nm capacity at its foundry supplier.

In a conference call with analysts following the quarterly report, Nvidia executives noted that the company is challenged by constrained supply of 28-nm capacity at foundry supplier Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC). Qualcomm Inc. said last month it would use other foundries besides TSMC for 28-nm products because of the supply constraints.

Jen-Hsun Huang, Nvidia's president and CEO, said there is not enough 28-nm capacity and that Nvidia and TSMC together did not plan for sufficient capacity at the node. "We need to fix that in the future," Huang said.

Huang said every Nvidia 28-nm chip produced by TSMC is being shipped to customers instantaneously. He also said that TSMC's success with 28-nm have contributed to the problem. Because 28-nm yields are "probably the best of any new node that TSMC has ever done," demand for the process technology node has been greater than expected, Huang said.

"It's yielding wonderfully at this point in its ramp," Huang said. "The performance is fabulous. The efficiency, energy efficiency, is terrific. So I think it explains the reason why the demand is so great for this particular node."

Huang said Nvidia expects 28-nm supply to be constrained through the end of the year. But he added that part of the reason Nvidia is forecasting significant growth for the second quarter is that there is more 28-nm capacity available than there was then.

Another factor that Nvidia is counting on for its success in the second quarter is the ramp up of its Tegra 3 applications processor, which is built on a 40-nm process, Huang said.

Nvidia (Santa Clara, Calif.) reported first quarter sales of $924.9 million, down 3 percent from the previous quarter and down 4 percent compared to the year-ago quarter. The company reported a net income in accordance with generally accepted accounting practices (GAAP ) of $60.4 million, or 10 cents per share, down 48 percent from the previous quarter and down 56 percent compared to the year-ago quarter.

On a non-GAAP basis, excluding charges, Nvidia reported a net income of $97.5 million, or 16 cents per share, down 38 percent from the previous quarter and down 64 percent compared with the year-ago quarter.

Nvidia's first quarter sales topped consensus analysts' expectations of about $916 million and non-GAAP earnings of 16 cents per share were in line with consensus analysts' expectations, according to Yahoo Finance.

For the fiscal second quarter, which closes in July, Nvidia said it expects sales to increase to between $990 million and $1.05 billion, up 7 to 14 percent sequentially. The company's sales target for the quarter exceeded consensus analysts' expectations of about $976 million, according to Yahoo Finance.

"Kepler GPUs are accelerating our business," said Jen-Hsun Huang, Nvidia's president and CEO, in a statement. "Our newly launched desktop products are winning some of the best reviews we've ever had."

Craig Berger, an analyst with FBR Capital Markets, said in a report circulated Friday that Nvidia's results and guidance were "better than feared" thanks to improving 28-nm foundry supply, alleviation of supply chain bottlenecks created by the flooding in Thailand last year and seasonal pick up in business. Berger said FBR believes the PC supply chain will replenish in the second and third quarters with the impact of the Thai floods dissipating.

"Overall, these are solid results and guidance showing robust execution with 28 nm while investing very heavily into future products," Berger wrote of Nvidia's quarterly report.

Nvidia is a very innovative firm. With the strategy they have for the 28nm process, expect the sales projections to continue to move north. Intel had tried to derail them from the fab angle, but Nvidia is right there fighting.